808 F.3d 373
8th Cir.2015Background
- Northern Oil and Limsco sought a judgment that the oil and gas lease remains valid and they hold the disputed Southwest Quarter of Section 3, Township 155 North, Range 99 West, Williams County, ND.
- The lease covers five sections described by PLSS, including the disputed 160-acre SW quarter of Section 3, and was issued in 1984 with a five-year primary term.
- The lease includes a Pugh clause intended to sever the lease where less than all of the leasehold is within a spacing unit, except lands within the same section of a spacing unit with a producing well.
- At the end of the primary term, two active wells were in the NW and NE quarters of Section 3; the SW quarter had no producing well or spacing unit at that time.
- The Moens argue the Pugh clause divides the lease at spacing-unit boundaries, while Northern Oil and Limsco argue it divides at section boundaries; the district court granted summary judgment for the lessees, and the Ninth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Meaning of 'section' in the Pugh clause | Moens: 'section' refers to spacing units and not PLSS sections. | Northern Oil/Limsco: 'section' refers to PLSS one-square-mile sections. | 'Section' means PLSS section (one-square-mile tract). |
| Level at which the Pugh clause divides the lease | Moens: division occurs at spacing-unit boundaries. | Northern Oil/Limsco: division occurs at PLSS section boundaries. | Pugh clause divides the lease at PLSS section boundaries. |
| Impact on indivisibility presumption and lease validity | Moens argue division would undermine the indivisibility presumption. | Northern Oil/Limsco maintain production in Section 3 keeps the entire section within the lease. | Lease remains valid because production in Section 3 maintains the entire section. |
Key Cases Cited
- Tank v. Citation Oil & Gas Corp., 848 N.W.2d 691 (N.D. 2014) (Pugh clause reading in context of indivisibility and other lease terms)
- Egeland v. Cont’l Res, Inc., 616 N.W.2d 861 (N.D. 2000) (indivisibility presumption; Pugh clause must clearly divide)
- Anderson v. Hess, 733 F. Supp. 2d 1100 (D. N.D. 2010) (interpretation of Pugh clause phrasing in lease language)
- Deckert v. McCormick, 857 N.W.2d 355 (N.D. 2014) (contract interpretation; plain meaning; give effect to entire contract)